Rakuten Soars After TSE Approves Move To Topix

Rakuten Eagles pitcher Masahiro Tanaka celebrates after winning over the Yomiuri Giants at Game 7 of baseball’s Japan Series.

Associated Press/Kyodo News

Shares of internet retailer Rakuten soared to an all-time high Wednesday after the company said it would to move to the Topix index of all the Tokyo Stock Exchange First Section issues from the startup JASDAQ bourse on Dec. 3.

Rakuten’s stock finished up 6.4% to Y1,527 on very heavy volume.

Once it’s on the Topix, which contains more than 1,700 companies and is used as a benchmark for investment in the entire Japanese stock market, traders say the increased exposure will naturally generate greater interest.

“Rakuten’s move will bring a lot of passive buyers to its stock that might have previously overlooked it,” says an equity trading director at a foreign brokerage. From Dec. 3, anybody buying a Topix index fund, for example, will be picking up Rakuten by default.”

Because of its high return-on-equity Rakuten has increasingly gained the attention of foreign investors.

“E-commerce penetration in Japan, which is now at only 3%, stands to grow tremendously going forward, especially as Japan implements structural reforms,” said Nicholas Weindling, a portfolio manager at J.P. Morgan Asset Management (Japan) Ltd., whose team manages $12 billion in Japanese equities.

Rakuten has been included in the TSE’s newly created JPX-Nikkei Index 400. Components need a minimum three-year average ROE of 40%, and a three-year cumulative operating profit of 40%.

Rakuten said it will pay a special end-year dividend of Y1/share to commemorate the listing change as well the company’s Tohoku Rakuten Eagles’ Japan Series pro baseball championship title, which it clinched in early November.

While the move to the Topix is already benefiting Rakuten, it may bode ill for the rest of the JASDAQ, since Rakuten’s market cap–currently about Y2.0 trillion, accounts for over 17% of the JASDAQ bourse’s total value. That’s more than the next six largest companies in the index combined.

“There is a concern among investors that there will be little need to buy the JASDAQ at all with Rakuten no longer on it,” said one equity trader.

“As a home for start-up firms and micro-caps, the JASDAQ faces liquidity issues as well analyst coverage issues, since many of the companies are too small to warrant big investor interest,” says Chibagin Asset Management general manager Yoshihiro Okumura. “As such, it can be considered a somewhat speculative place to trade.”

The JASDAQ is up 76% year-to-date compared with a 48% gain for the Nikkei Stock Average. Rakuten is up 127% in over same time period.

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